Thursday 2 July 2009 15.00 EDT
First published on Thursday 2 July 2009 15.00 EDT

Over the last 30 years the Anglo-Saxon world has adopted the most disingenuous of economic systems. Under the guise of capitalism for all, we have produced an extraordinary amount of capital but an ever diminishing number of capitalists. Rather than trickling downwards, wealth has leveraged upwards – denying increasing numbers of people the ability to truly own, trade and prosper.

In 1976, excluding property, the bottom half of the UK population owned 12% of the marketable wealth; by 2003 that had fallen to just 1%. Economists at Société Générale recently calculated that in the United States, the income of the highest paid fifth rose by 60% after 1970, while for all others it has fallen by 10%. Through monopolisation of capital markets, deployment of unprecedented leverage capital has centralised around a model of debt-financed speculation that – without any due diligence – has been transferred wholesale to the taxpayer, more than doubling the entire national debt.

The average citizen now suffers twice over. Since ordinary incomes were too low to support desired standards of living, personal debt financed the gap. Desperate to secure an asset base against which debt could eventually be redeemed, those without capital herded en masse into debt-financed property bubbles that were always going to burst, leaving many with no equity and a hugely enhanced personal debt. That debt has returned by many multiples on the public balance sheet – leading to tax increases and service cuts. No wonder people, full of furious contempt, are willing to challenge the accepted economic orthodoxies.

David Cameron recognised all of this and spoke at Davos early this year of the need to recapitalise the poor and create a capitalism that works for all. The key political aim of this truly transformative conservatism must be the generation of an asset effect for the decapitalised bottom half of society. Assets must, however, come from somewhere, and since redistribution and expenditure via the state has such a poor record in alleviating dependency, a fresh approach is required. Welfare or public expenditure should move from a spending to an investment model. The aim must be to free the poor from welfare subsidy through the generation of asset independence. The following are some ideas as to how this might be achieved:

1 The poor become dragons. The overall level of the UK bank bailout depends on definition, but authorities agree that it represents some £1 trillion. At some point these assets will be broken up and sold back to the private sector. Even at a rough figure of 5% return, this will produce an enormous capital injection of £50 billion. The argument on the progressive right is that since the poor suffer the greatest marginal rates of taxation (the bottom fifth of households also pay a greater share of their income in overall taxation than any other group), this money should be used to repay debt and lower their tax burden.

But such repayment will generate no asset effect for those at the bottom. A far better idea would be to distribute a substantial proportion of the return to the poor via investment vouchers. These vouchers should only be activated in conjunction with others – creating an associative investment pool. With appropriate advice, a whole new class of asset investors can be created at the bottom of society. Further, if they invest in ordinary businesses they will only get a standard return. If, however, they choose to invest in social enterprises, their investment will generate both an economic and a social profit. Investment in local shops, for example, will give both a monetary and social stake and return. So envisaged, the poor generate a stakeholder economy around a universalised dragons' den that provides seed capital for a new generation of businesses.

2 The capitalisation of welfare streams. The only real viable source for welfare capitalisation is housing and child benefit. Councils have used their housing stock to generate cash income for benefit dependency for generations. By constantly raising rents, councils have created housing that the working poor cannot afford. Some sort of redress is required – a capital or asset credit, financed by a council bond, should be applied to those whose long-term benefit has, in effect, subsidised council receipts. This credit should be a tradable asset that, when conjoined with other new ventures such as community shares or social investment, can generate an asset effect for those whose routes out of poverty are presently so curtailed.

Similarly, child benefit should be means-tested, and the savings applied to a government matching programme for child trust funds for the lowest income groups. Studies by the Children's Mutual show that if the government matches the deposits of the poorest families, at age 18 the values of those funds for the poorest will be at the national average – currently £10,000.

3 Create a community right to buy. Allow local community groups to register an interest in a local eyesore or decrepit building, whether privately or publicly owned. For a fair market value, such legislation can allow local social enterprises six months to put together a funding package to turn a liability into an asset for a transformative local business.

4 Enact a British variant of the community reinvestment act (CRA). Money that the poor deposit in their own communities is siphoned off to lend to more creditworthy customers elsewhere. We need to enforce a local monetarism that ensures a greater supply of money remains in our most deprived communities. The idea that the American CRA was behind the sub-prime meltdown is a myth – in fact, even though CRA lenders were 16% more likely to accept a loan application, they were 66% less likely to generate a sub-prime loan. CRA makes credit more responsible, not less.

5 Create a more dynamic and self-managed universal pension. In order to encourage earlier saving, let people access their pension fund to buy a first house or fund education – let the pension become a multi-applicable vehicle to generate other non-speculative and carefully constrained assets. Initiate a good advice service for general public pensions: this would enable people to eliminate management costs and self-manage their own provision, producing a pension pot on average 75% higher than current returns.

There are many other ideas; the scaling up of employee share ownership and the extension of management buyouts to workers and social enterprises. A community allowance to bridge the administrative nightmare that is moving from benefits to part-time work. Community share issuance offers the prospect of popularising local ownership; the melding of time banks with equity investment; the conversion of sweat equity into real wealth.

All of the above offer the real opportunity to address the contemporary asset deficit and convert an ideology of ownership into a practised and fully participated reality. The essence of the new Conservatism is the priority of associative relationship; this is the coming political economy of that self-same vision – challenging the class-based nature of our society as never before, it offers a new Tory vision of the British commonweal.